Environmental Kuznets Curve hypothesis for Pakistan: Empirical evidence form ARDL bound testing and causality approach

Abstract

This study examines the existence of environmental Kuznets curve (EKC) in the perspective of Pakistan over the period of 1970–2016. For this persistence, the impact of GDP per capita, trade openness, financial development, energy consumption, and foreign direct investment on CO2 emissions is empirically scrutinized within the EKC structure. The study employed the autoregressive distributed lagged (ARDL) bound test to scrutinize the long-run relationship between the variables. For robustness, the study applied the dynamic ordinary least square technique. The Granger causality test is implemented to investigate the causal relationship between the variables for short- and long-run. The experimental results of ARDL bound test method recommend the existence of EKC hypothesis for Pakistan. The causality test outcomes indicate that energy consumption and CO2 emissions have a bidirectional relationship, whereas the other variables unidirectional cause the CO2 emissions. The unidirectional causality from other variables toward CO2 emissions supports the confirmation of the EKC hypothesis as this seems in the countries where the EKC is authenticated. These findings recommend that the regulator authorities need to enlarge investment in different new energy plans that might contribute to the exertions of climate extenuation.

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